France moves to jump-start auto industry

Plan focuses on cleaner vehicles and protecting jobs as part of President Francois Hollande's "re-industrialisation".

The French government has unveiled a plan to revive the country's struggling automobile industry, as about 8,000 jobs remain under threat at automaker PSA Peugeot Citroen.

Wednesday's plan focuses on making France a center for production of environmentally friendly cars.

It includes offering incentives to French consumers who buy electric or hybrid cars. The plan unlocks some $420 million for companies investing in such technology.

The plan is part of a grand scheme by President Francois Hollande's administration to keep and lure manufacturing jobs to France, the so-called re-industrialisation of the country.

Highlighting the difficulties facing the crisis-hit auto sector, Citroen announced on Wednesday it had suffered a first half net loss of $989m, more than reversing a year-earlier net profit.

The recovery plan includes a range of measures to boost cleaner vehicles amid hopes French carmakers can carve out a niche in the market.

But it also contains hints of protectionism, with France planning to ask the European Union to put its 2010 Free Trade Agreement with South Korea under surveillance so as to "defend the interests of the French automobile industry".

It will see the government commit to 25 per cent of its new vehicles being electric or hybrid and provide for financing facilities for manufacturers and suppliers suffering from a major drop in European car sales.

Peugeot, France's biggest carmaker and the second-largest in Europe, had been expected to announce a first-half net loss but the final figure was more than double analysts' expectations.

Peugeot said overall revenues were down 5.1 per cent in the first half to $35.52bn while the auto division alone suffered a net loss of $794.4m. Sales in Europe fell 15.2 per cent.

Recovery plan

The cost-cutting plan includes 720m in savings from reorganising French production, which includes the previously announced job cuts, reductions in capital spending and savings from a tie-up with US giant General Motors.

"The group is facing difficult times," Peugeot chief Philippe Varin said in a statement.

"The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganisation of our French production base and a reduction in our structural costs," he said.

"Restoring the group's competitiveness will secure its future."

Hollande's new Socialist government has attacked Peugeot's strategy and called the job cuts "unacceptable".

The cuts announcement sparked anger among France's powerful unions and dealt a blow to Hollande's efforts to get the economy back on track amid concerns the country might be heading for a recession after an expected contraction in the second quarter.

Peugeot, which employs 100,000 people in France, is a key symbol of the country's industry and its problems highlight France's difficulty in competing with rivals with lower labour costs.

Hollande's government has lashed out at Peugeot over the cuts, with Arnaud Montebourg, the minister for industrial renewal, saying he had a "real problem" with the company's strategy and did not have confidence in its management.

Company Chairman Thierry Peugeot said last week the attacks have put PSA in a "dangerous" position and France's right-wing opposition has accused the government of creating a toxic business atmosphere that threatens the economy.

About 593,000 people are directly employed in automobile production in France.